Beware of tapering, Fed official says

by Ryan Smith26 Aug 2013

The Federal Reserve shouldn’t be in a hurry to cut back its asset purchase program, according to St. Louis Fed President James Bullard.

In a Friday interview on CNBC, Bullard urged caution in winding down the $85bn-a-month program.

“I don't think we have to be in any hurry in this situation,” he said.“Inflation is running low, we have mixed data on the economy. … “I think we can afford to be very deliberate in our decision making here.”

Bullard said that while the labor market is improving, inflation is low and the gross domestic product is looking “kind of weak.”  Bullard said that he wants to see indications that inflation is headed back to at least the Fed’s 2% target.

The recent drop in new home sales could throw a wrench into the Fed’s taper plans. With sales dropping 13.4% in July from the previous month as interest rates rise, some economists think the Fed might delay cutting back its asset purchase plan.

“The higher mortgage rates are having an impact on the housing market,” Scott Brown, chief economist with Raymond James, told Reuters Friday. “That makes tapering somewhat less likely.”

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